Successful Hybridity of Good and Services for Manufactures

Traditional manufacturers have moved into service and customer
solution ﬁelds to solidify their positions in increasingly competitive markets
and grow their revenues and margins, leading to the well-documented shift from
a goods-dominant to a service-dominant logic in business markets (e.g., Antioco
et al. 2008; Neu and Brown 2008; Sawhney, Balasubramanian, and Krishnan 2004; Vargo
and Lusch 2004; Wise and Baumgartner 1999). Froma scholarly perspective, we
know a great deal about the processes, antecedents, and consequences of
designing and delivering successful service offerings, as most famously exempliﬁed
by the Gaps service quality model (Zeithaml, Parasuraman, and Berry 1990), the
three-component model (Rust and Oliver
1994), and SERVQUAL dimensions (Parasuraman,
Zeithaml, and Berry 1988). However, extant literature predominantly refers to
pure services in consumer marketing settings, such as the airline industry,
ﬁnancial services, hospitality, and retailing. This focus ignores a domain that may be
critical: hybrid offerings. Shankar, Berry, and Dotzel (2007, p. 2) deﬁne a hybrid
offering as a combination of “one or more goods and one or more services,
creating more customer beneﬁts than if the good and service were available
separately.”

The same authors provide a much simpler deﬁnition in amanagerial
article: “hybrid solutions are products and services combined into innovative
offerings” (Shankar, Berry, and Dotzel 2009, p. 95). We adopt the latter
conceptualization, particularly with regard to hybrid offerings in business markets
that combine industrial goods and services.

Moreover, we note increasing research interest in the
successful deployment of goods–service combinations (Antioco et al. 2008). For
example, Fang, Palmatier, and Steenkamp (2008) derive empirical evidence from
longitudinal, aggregate, ﬁrm-level data about when and how goods-based
companies generate shareholder value when they begin to offer ancillary
services. The authors ﬁnd that “the effects [of service transition strategies]
on ﬁrm value become pronounced only after the level of service sales reaches a
critical mass, which averages approximately 20%–30% of total ﬁrm sales” (Fang,
Palmatier, and Steenkamp 2008, p. 11).

In a recent study, Tuli, Kohli, and Bharadwaj (2007) provide
a new approach for understanding customer solutions: a particular type of hybrid
offerings in business markets. The authors show that customers and suppliers
approach solution offerings from very different angles. Whereas vendors
typically view solution offerings as customized and integrated combinations of goods
and services for meeting a customer’s business needs, customers perceive
solutions as relational processes.

Despite this emerging body of research, we know little about
what drives the success or failure of an effort to increase the service
component (Bolton, Grewal, and Levy 2007; Neu and Brown 2008). In general,
managers agree that they must move into services, but anecdotal evidence indicates
mixed outcomes at best.

According to a Bain &Co. study, only 21% of companies
succeed with their service strategies (Baveja, Gilbert, and Ledingham 2004),
and few ﬁrms that enter service markets outperform their pure goods-centric
counterparts in terms of revenue growth, margins, or returns on equity. Stanley
and Wojcik (2005) ﬁnd that approximately half of all solution providers realize
only modest beneﬁts, and 25% actually lose money.

We contend that this evidence exempliﬁes our poor understanding
of hybrid offerings compared with pure goods and pure services offerings. Which
particular strengths in operations, product development, and marketing can a
goods manufacturer leverage particularly well for hybrid offerings? What unique
opportunities exist that pure service players cannot access? Rather than just a
general agreement about why manufacturers move toward services, we need a
better understanding of how they can ensure that their service activities
succeed. To address this fundamental issue, we investigate three main research
questions:

2. Which unique resources must manufacturers leverage to build
these distinctive capabilities?

3. How can goods manufacturers translate unique resources and
distinctive service capabilities into positional advantages, and how do these
effects vary across different types of services?

By answering these questions, we make several contributions.
First, using the resource-based view as a theoretical base, we identify
resources and capabilities that are key for a successful hybrid offering
deployment. We do not aim to generate an exhaustive list of generic
capabilities; rather, we focus on speciﬁc resources and distinctive
capabilities that goods-focused manufacturing companies deem most important for
developing successful hybrid offerings.

Then, we integrate those resources and capabilities into an
overall conceptual frame. Second, considering the many types of hybrid
offerings, we develop a ﬁne-grained typology that reveals how different types
of hybrid offerings moderate the link between service capabilities and
positional advantage.